Radiant Logistics Inc (RLGT) 2014 Q3 法說會逐字稿

This afternoon, Bohn Crain, Radiant Logistics' founder and CEO; and Radiant's Chief Financial Officer, Tom Macomber, will discuss financial results for the Company's third fiscal quarter ended March 31st, 2014. Following their comments, we will open the call to questions. This conference is scheduled for 30 minutes.

This conference call may include forward-looking statements within the meaning of the Securities Act of 1933, and the Securities Exchange Act of 1934. The Company has based these forward-looking statements on its current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about the Company that may cause the Company's actual results or achievements to be materially different from the results or achievements expressed or implied by such forward-looking statements.

While it is impossible to identify all the factors that may cause the Company's actual results or achievements to differ materially from those set forth in our forward-looking statements, such factors include those that have in the past and may in the future be identified in the Company's SEC filings and other public announcements, which are available on the Radiant website, at www.RadiantDelivers.com. In addition, past results are not necessarily an indication of future performance.

Now I'd like to pass the call over to Radiant's founder and CEO, Bohn Crain.

Thank you. Good afternoon, everyone, and thank you for joining in on today's call. This is a first for Radiant in that I'm doing the call from Hong Kong this morning, and it happens to be 4 a.m. for me here, so I apologize in advance for any technical issues with today's call. But I am attending the annual conference for the World Cargo Alliance, which happens to coincide with our quarterly call. With that proviso, on to the task at hand.

We are very pleased to report another solid quarter in continuing our trend of margin expansion and earnings growth for the quarter ended March 31, where we posted adjusted EBITDA of $3.5 million, up $0.5 million and 17.2% over the comparable prior-year period. We are particularly pleased with these results in the face of the tough weather conditions along the East Coast that plagued most of the industry participants this quarter.

Consistent with transporters, we also continue to make good progress on leveraging our scalable business model to drive margin expansion, with adjusted EBITDA as a function of net revenues up 80 basis points for the comparable prior-year period for 14.6%. As we previously discussed, our incremental [pull for] supporting that next dollar of gross margin is very small, and we remain very focused on our opportunity to drive further margin expansion, as we continue to scale the business and convert more agent locations to company-owned stores.

We also continue to make good progress in our network expansion. And in March of this year, we opened new operations in Philadelphia and completed a transaction with Phoenix Cartage and Air Freight. Prior to the acquisition, Phoenix Cartage operated as part of a competing national transportation group that saw value in transitioning to us here at Radiant. We believe the transaction is representative of the broader pipeline of opportunities available to us in the marketplace, and is further evidence of our ability to attract large individual contributors from competing networks who can benefit from the Radiant platform, similar to our Laredo transaction in December of 2011 and our JFK transaction in February of 2012.

In addition, we recently had some positive developments on the legal front. On April 25th, a jury returned a verdict in the Company's favor in the amount of $1.5 million in connection with our claims for statutory and common law misappropriation of our trade secrets in the state of California, in a case emanating from our 2011 acquisition of DBA. Notwithstanding this positive development, the ultimate resolution of this dispute is not expected to incur until the appeal process has been exhausted by the nonprevailing party. And accordingly, we will not report any benefit from this award until such time as the dispute has been fully adjudicated, and the ultimate timing of this process remains uncertain.

As we discussed on our previous call, we remain very bullish on the growth platform we've created at Radiant and the scalability of our non-asset-based business model. Looking forward, the heart of our growth strategy continues to focus on bringing value to the agent-based storing community, leveraging our staff to become a company to provide our operating partners with an opportunity to share in the value that they helped create; providing a robust platform from which to serve the end customers, including providing differentiated service offerings like our Hawaiian home network that we've joined through On Time, and offering a unique opportunity in terms of succession planning and liquidity for our station owners. This approves has made us unique in the marketplace and has been key to our ability to grow.

Within this framework, we are appealing our growth through a combination of organic and acquisition initiatives. Organically, we continue to focus on improving the tools available to our existing network to win the business, as well as expanding the network itself by onboarding related stations that recognize the benefit of our platform. In addition, we will also continue to be opportunistic in our pursuit of accretive acquisition opportunities to further accelerate our growth. This would include the conversion of our current agent station, like our acquisitions in Los Angeles and Portland. The acquisition of agent stations participating in competing networks like Laredo, JFK and now Philadelphia; and ultimately, the potential acquisition of other competing networks.

In addition, we also have an interest in pursuing other non-asset-based acquisition opportunities that bring critical mass from a geographic standpoint, purchasing power, and/or complementary service offerings to the current platform. Broadly, these would fall into the categories of truck brokerage, intermodal, NPOTC and custom brokerage services. We also continue to enjoy significant capacity under our existing $30 million credit facility at Bank of America to execute the strategy, and while not ruling out the possibility of larger transactions or even smaller transactions under the right circumstances.

Our efforts are largely focused on acquisition candidates generating $1 million to $3 million of EBITDA, where we believe we are able to value and structure the transactions, consistent with our past practices. That is, evaluations of plus or minus five times, and using earnout structures to achieve the transactions.

Moving on to the outlook, we are providing guidance for the upcoming quarter ended June 30. And excluding the benefit of any further acquisitions or any benefit from litigation, we are projecting adjusted EBITDA in the range of [$3.4 billion to $3.9 billion] on approximately [$88.1 million to $92.8 million] in revenue, which equates to adjusted net income available to common shareholders in the range of $1.4 million to $1.7 million, or $0.04 to $0.05 per basic and $0.04 per fully diluted share.

We would also like to remind investors that our free cash flow is generally higher than our net income, because we have significant noncash depreciation and amortization expenses flowing through our financial statements as a result of the mechanics and accounting for acquisitions, and the fact that we have minimal maintenance capital expenditure requirements. This remains a very exciting time in the evolution of Radiant, and we remain confident that our growth strategy will continue to bring value for our operating partners, shareholders, and the end customers that we serve.

I will now turn it over to Todd Macomber, our CFO, to walk us through our financial results, and then we will open it up for Q&A.

Thanks, Bohn, and good afternoon, everyone. Today, we will be discussing our financial results, including adjusted net income and adjusted EBITDA for the three and nine months ended March 31, 2014. In reviewing net income, for the three months ended March 31, 2014, we reported net income attributable to common shareholders of $1,137,000 on $86 million of revenues, or $0.03 per basic and fully diluted share, including a $1,145,000 gain on changing continued consideration. For the three months ended March 31, 2013, we reported net income attributable to common shareholders of $882,000 on $72.8 million of revenues or $0.03 per basic and fully diluted share, including a gain of $675,000 on change in contingent consideration. This represents an increase of $255,000 or 28.9% over the comparable prior-year period.

For the nine months ended March 31, 2014, we reported net income attributable to common shareholders of $2,424,000 on $246.9 million of revenues, or $0.07 per basic and fully diluted share, including a $1,358,000 gain on change in contingent consideration, significantly offset by non-cash charge of $1,238,000 related to the unamortized OID and debt issuance cost written off in connection with the retirement of the subordinated debt. For the nine months ended March 31, 2013, we reported net income attributable to common shareholders of $1,306,000 on $230.1 million of revenues or $0.04 for basic and fully diluted share, including a net gain on litigation settlement of $368,000 and another $950,000 gain in changing contingent consideration. This represents an increase of $1,118,000 or approximately 85.6% over the comparable prior-year period.

In reviewing adjusted net income for the three months ended March 31, 2014, we reported adjusted net income attributable to common shareholders of $1,418,000 or $0.04 per basic and fully diluted share. For the three months ended March 31, 2013, we reported adjusted net income attributable to common shareholders of $1,482,000 or $0.04 per basic and fully diluted share. This represented a slight decrease of $64,000 or 4.3%. For the nine months ended March 31, 2014, we reported adjusted net income attributable to common shareholders of $4,731,000 or $0.14 per basic and $0.13 for fully diluted share. For the nine months ended December -- or I'm sorry, March 31, 2013, we reported adjusted net income attributable to common shareholders of $3,702,000 or $0.11 per basic and fully diluted share, an increase of $1,029,000 or approximately 27.8%.

In reviewing adjusted EBITDA, we reported adjusted EBITDA of $3,503,000 for the three months ended March 31, 2014, compared to adjusted EBITDA of $2,988,000 for the three months ended March 31, 2013. This represents an increase of $515,000 or 17.2% over the comparable prior-year period. We reported adjusted EBITDA of $10,254,000 for the nine months ended March 31, 2014, compared to adjusted EBITDA of $7,651,000 for the nine months ended March 31, 2013. This represents an increase of $2,603,000 or 34% over the comparable prior-year period. A reconciliation of the Company's adjusted EBITDA to the most directly comparable GAAP measure appears at the end of our earnings release.

With that said, I will turn the call back over to our moderator to facilitate any Q&A from our callers.

(Operator Instructions). Jeff Martin, ROTH Capital Partners.

Hi, Bohn. Hi, Todd. (multiple speakers) Can you give us an update on On Time express? How the integration process or leveraging process, is there -- are you seeing any increased utilization there? And what's your outlook for it?

Sure. The integration is going -- a quick background for those who might not have the benefit of it. So, On Time was an acquisition that we made back in October 1 of last year. Their core business historically was servicing the aviation industry specifically, and they represented for us a dedicated line-haul network, effectively a mini-foreign air network for those familiar with the industry.

So -- in acquiring them, not only did we get what we thought was a great acquisition opportunity, but what we saw as a differentiator for us in the marketplace, to help expand margin characteristics of our existing business, as well as a differentiator to win new end customers and also a differentiator to attract additional agent stations to the platform. So that's kind of the background on the question itself.

So On Time, the integration is going well. We are steadily getting more and more participation and support across the networks of the trend-line is positive on that, as well as On Time, what I'll call its retail business as opposed to its wholesale business, it continues to expand within its industry vertical focus, and is continuing to have some incremental success in its own rights.

So, we still certainly have some work to do in terms of getting more networks and more freight on the network, but the trend line is good. They are developing a very good reputation across the network in terms of what they represent, in terms of price and service as an alternative to some of the traditional non-affiliated third-party carriers that would be available to our stations to select from. And we remain very -- I guess you would say bullish about On Time and what it's going to do for us over the longer term.

Okay. And then could you give us maybe, from a high level, areas of the business that you feel are performing well, areas you feel are somewhat of a work-in-progress at this point? I know some of the cross-border business has been challenging as of late, and I would imagine the Newark facility was weather-impacted in the quarter. Just if you could kind of walk us through areas of strength and areas of -- that you are working on improving, that'd be helpful.

Right. Sure. So -- well, you kind of talked about a couple of interesting points that I'll tell you just to kind of launch from. So, for those who follow a lot of companies in the space, people would know that most folks just really had a tough go of it relative to the weather and what that did along most of the Eastern Seaboard from Boston to Atlanta, I think. And we certainly were impacted by that as well. I think our results would've been that much stronger. So, kind of a combination of March being typically the seasonally slowest quarter to begin with, along with the weather, kind of diminished or dampened the quarterly results a little bit.

And kind of reflecting back on some of the things that we have been working on and some of the successes, we certainly have made some good progress in what were kind of the historically acquired company-owned operations of distribution by Air, which was the Los Angeles and Newark operations, with the acquisition of Marvir in Los Angeles, we were able to integrate the legacy DDA company-owned operations with Marvir, and eliminate redundant costs and infrastructure facilities, specifically that dropped a $1 million a year in run rate profitability for the business.

Won't be quite to that extent, but we have a similar opportunity coming up here with Newark. Newark was the legacy corporate back office for DBA that was set to expire this year, and so we are looking to kind of rightsize that facility, and that will definitely be helpful to kind of the overall financial results going forward. It's not quite the magnitude of what we were able to achieve in Los Angeles.

Laredo has, to your point, softened a little bit. We are seeing a positive trend there with that kind of reverting back to more normalized results. So, in terms of our kind of high level thematic, our company-owned locations, the trend line is very positive. We've been putting a lot of focus in on those locations and it is bearing fruit. So we are really pleased there.

we have been spending a lot of time identifying kind of the -- some of the key sales folks, bringing than in for some sales training, getting them kind of dialed up and focused on kind of the On Time capabilities, and what the line-haul network would represent for us in terms of the differentiator, and really trying to get that leadership team organized to help drive organic growth. And we're starting to see some positive results out of some of those initiatives as well.

And then last question, Bohn, on the acquisition pipeline. How do you feel the pipeline is at this point as it compares to recent past?

It truly is an exciting time. We probably -- well, not probably, we definitely have more financial flexibility today than we've ever had in the history of the Company to go execute our strategy. And we have as robust, if not a more robust, pipeline than we have ever had, including an increasing number of, I guess what I would call, reverse inquiries with folks actually reaching out to us to open up a dialogue.

So we have active -- as you know, Jeff, we have actively maintained any number of conversations at any point in time, and that remains true today across kind of all the categories. In conversations -- there's opportunities to convert agent stations to company-owned stores; there's opportunities to attract agent stations away from competitors -- networks as well as potential opportunity to do some larger acquisitions. So we are actively looking across all of those horizons, and expect to remain acquisitive here in the quarters ahead.

Great. Thanks for taking my questions. Good luck, guys.

Thanks.

Marco Rodriguez, Stonegate Securities.

Thanks for taking my questions. Just kind of wanted to follow-up on the OTE acquisition question earlier. Obviously, you've had it here now for a couple quarters. Just kind of wondering if margins are kind of coming in as you expected for them?

I think over the longer term, yes. And near-term, there's been a little compression in margins, and as they have onboarded additional capacity in the targeted trade lanes to support our network freight, in addition to their -- I guess what we would call their resale business. So, I think over the very shortest terms, there has been a modest dip at On Time, but that's just a timing -- we view that to be more of a timing issue as we match capacity and demand as opposed to anything systemic.

Got it. And that kind of dovetails my next question. I was looking at your pro forma numbers that you published in your Q that sort of capture the acquisition effect, and it looks like your EBITDA margin as a percent of net revenues for Q3 declined sequentially and year-over-year in the quarter. While you know revenues were kind of flat -- or rather did decline sequentially in a relatively flat year-over-year, I'm wondering what might've been kind of driving that issue on a year-to-year basis?

I'm going to let Todd field that question. He's (multiple speakers) better positioned to look at the numbers this morning than I am, so.

You know, I'd have to -- I don't have a good answer right now, Marco, I'm sorry. (multiple speakers)

Okay. I'll follow-up with you afterwards. (multiple speakers)

I can give you just a little bit of color on it. And that is, as we think about On Time, one of the things that they did in response to the opportunity was add some additional shift. They had to change their cut-off times to be able to effectively hold trucks to capture freight, so their trucks basically would leave a given location later in the evening they historically have had. So they had a little bit of incremental cost in getting configured to support the wholesale business opportunity from the forwarding network.

But again, I view that to be more of kind of a timing issue, as we balance kind of demand and then capacity as opposed to anything systemic. We continue to kind of march up the curve, so to speak. I think we were -- adjusted EBITDA as a function of net revenues, by my recollection, was at 14.7% this last quarter. And you know, I think we'll continue to kind of march up that curve. And the next stop we would -- hopefully, we will be able to consistently share 15-plus-percent type ratios here in the coming quarters and continue to build from there.

Okay, perfect. And then last quick question and I'll jump back in queue. But just kind of wanted to circle back around into the new organizational structure that you guys implemented back -- I think was in July of last year, to help drive organic growth. Can you talk a little bit about how that's shaping up versus your expectations? And then what sort of incremental net revenue growth are you expecting these actions to yield?

Okay. Again, this is background for folks on the call. In an effort to kind of dial up and focus on organic growth as well as to support just the larger organization, we rolled out a new structure in July of this last year where we have what are four regional VPs that effectively have P&L accountability responsible for driving growth in the regions -- that's the east, central, west and Mexico markets.

And we are getting good traction. It certainly takes time, and it's an investment of effort and resources, but we certainly have a number of kind of case studies or data points where we have been able to kind of, in collaboration with the regional VPs and the On Time sales folks, and the multiple station managers, to go into accounts where, historically, we couldn't get an audience or, historically, when we had the audience but weren't getting incremental business -- those dynamics are changing. So, as we had -- we are still working through our budget process for this next fiscal year, but we are kind of -- internally, we are targeting -- call it 6% to 8% organic growth type numbers at the gross margin line item. That's what we hope to achieve over time through these efforts and kind of the regional VP structure that are put in place.

Got it. That's very helpful. Thanks a lot, guys.

David Campbell, Thompson Davis & Company.

Hi, Bohn. I just wanted to ask you if you could explain how you did so well in revenues? It seems like your March quarter revenues were $3 million to $4 million -- gross revenues, $3 million to $4 million more than you had assumed a few months ago. And I was wondering what happened? Why did you do so well?

Todd can probably get more precise. But certainly one of the factors that will come into that would be the Philadelphia acquisition. So we only had one month's worth of benefit of Philadelphia, but that's going to be a meaningful station for us. And that certainly would be at least one delta to the numbers.

Yes, I echo that, Bohn. Absolutely, that's probably the biggest driver in what we didn't contemplate when we put together our outlook as we reported Q2.

Okay. And what about On Time's revenues in the quarter? The $2.3 million of net revenue growth year-to-year -- I guess most of that was On Time?

Yes, most of it definitely was On Time. So we are seeing a slight -- I don't think you know -- a slight uptick in some of the agents -- a lot of the stations, but the vast majority of that uptick year-over-year is definitely On Time. (multiple speakers) We had (multiple speakers) there.

Right, right. And the gross margin was down from the second quarter, that's probably On Time because they have lower gross margins?

Yes. (multiple speakers) It's going to be On Time, and a little bit of it was Philadelphia acquisition. And in the year-ago period, we had some really strong project work that had very, very high margins. So it kind of inflated the baseline to begin with. But -- so it's kind of those three factors.

Right. And what about the process that you have underway to increase the gross margin of your domestic stations by moving more of their freight on the On Time network? Is that process continuing? Or where do we stand on that?

Yes, that (multiple speakers) will be a perpetual process, as we continue to educate and refine the On Time network itself. But really just kind of communicating out and the network gaining confidence at kind of the service level the next few capabilities of On Time. But we are literally measuring that every week and monitoring effectively every palate of freight. And if it could have gone on the On Time network and didn't, getting a deeper understanding of that down to the individual associate desk level on the folks responsible for those routing incidents, to make sure that if we got a truck running at a trade lane and it has capacity on it, and we have freight, that freight finds its way onto that truck.

But it's still a long-term plan to increase your domestic gross margins?

That is correct.

And what about your conversion of agents to company offices? Any news on that?

Nothing to share in specifics other than to acknowledge it remains one of our acquisition thematics, and we're certainly talking to a couple of different locations about that opportunity.

Okay. And the preferred dividends on the P&L were not on the cash flow statement. Why is that?

It's really a memo type of line item that we had to add in for GAAP purposes, because for all intents and purposes, it was earned and not paid. We did not pay that until the end of April, so it was kind of a GAAP-type line item that we had to layer on for the financial presentation purposes only.

(multiple speakers) It will be in the second quarter. I mean, in the (multiple speakers) fourth quarter?

Correct. It just hasn't been declared as of the quarter-end.

Right. And what was the $3.1 million payments to shareholders, what was that? In the third quarter?

The $3.1 million is --

$1.3 million.

That could be some of the earnouts that -- it was partly On Time working capital adjustments, part of the things that we put -- as part of the negotiations, we end up having to -- there's a threshold that we anticipate for working capital. If that working capital, as of the acquisition date, is higher or lower, we end up having to pay that money back to the formal shareholder. And his working capital was higher than the target threshold.

Okay, good. Okay. And the provision for bad loss loan losses, that was down. I guess that will -- that's just a temporary thing. And your projection for growth in the fourth quarter, again, higher than previously. I guess that's because of the Philadelphia acquisition, primarily?

Yes, Philadelphia is a big piece of it, and of course, we didn't have On Time in the year-ago period. So that's -- yes, that's the biggest drivers right there.

And that will largely be in international business?

The Philadelphia?

Right.

(multiple speakers) That's about 50/50, Dave.

50/50?

Yes.

Okay. I'll let somebody else have it. Thank you very much.

Thank you.

(Operator Instructions). Mark Zinski.

Just to clarify, the organic revenue growth for the quarter year-over-year was pretty minimal. Is that correct?

Correct.

Okay. And do you have any expectations for organic revenue growth for calendar year 2014? Do you expect any kind of baseline of organic growth? Or do you think it will be primarily through acquisition?

Yes, we are still kind of working through finalizing our budgeted forecasting for next year, but we are certainly organizing and holding a conversation internally with the RVPs, trying to get them organized to execute and deliver against the plan that would deliver the 6% to 8% price organic growth, net revenue or gross margin in the business. So we haven't kind of locked that down, but that is certainly where we are trying to drive the organization.

Kind of coming back to your earlier point as well, while it's certainly true that organic growth was relatively flat, I think in some of my prepared comments a little earlier, part of that is driven by the horrific weather that took place in the Northeast. So, I certainly don't want to use that as the "dog ate my homework" conversation, but we are having better success in the field than what that -- what the quarterly results might suggest on the organic side.

Okay. So can you explain the dynamic with the relationship with rail traffic? Because rail traffic obviously was snarled because of the colon in calendar Q1. And there's been discussion that some of that spilled over into trucking. So that would've been a positive for trucking. But you're saying you didn't see that as a -- in your business?

Yes, we -- on terms of modality, we do -- today, we do very, very little intermodal. Most of our stuff is more high-value, high-velocity, time-definite supply chain, which just almost by definition takes us away from the intermodal side of things. And even on the trucking side, our -- just to kind of hit it again, we are much more -- we do very little truck brokerage type work today. Our stuff is really time-definite expedited services. And so we really don't necessarily get caught up in mode shift and rail versus truck, although we are kind of ultimately share in that experience by expanding the type and capacity. But that's not traditionally the same carrier base that we are working towards.

Okay. No, great, understood. And then next on the cross-border traffic, specifically with Mexico, with the ensuring phenomenon and the discussion that it's, from a logistic standpoint now, in terms of processing paperwork and so forth, going between countries is becoming easier, wouldn't you expect that business to have some decent growth in calendar 2014? Or are there some other kind of things going on behind the scenes there?

No, we would. We -- just kind of the macro trend of people using the term here-sourcing and what's going on with Mexico specifically. We think that should and hopefully will continue to deliver solid growth to the organization.

Okay. And then, lastly, in terms of the capacity constraints within trucking and the driver shortages, is that ultimately sort of a wash for you, in terms of increased revenue and increased cost of goods sold? Or does it flush out differently?

Well, I think -- that's a very interesting question. I'm going to give you a couple of potentially counterintuitive responses to that. And that is, for our domestic services -- well, let me back up and set the stage here just a little bit. So, our network is still more heavily weighted toward the agent stations than the company-owned stores. And for the agent-based stations and for domestic services, we actually retain a negotiated percentage of the gross bill-out, which is a long way of saying that it's the individual agent stations that bear the risk reward of margin expansion and contraction on the domestic services.

So, if, in fact, there is a tightening capacity and rates get taken up, we will actually get a net benefit of that, with the agent stations bearing the brunt. But that's kind of one of my two responses.

And the second is, is that we view -- hours of service, tightening capacity, driver shortage, all of those are very real things facing our industry. With that said, we believe that the On Time network represents, at least in part, a competitive response to that, with our dedicated line-haul network. We believe we are going to be in a relatively stronger position to the more traditional freight forwarding networks that we compete against day-to-day, because of the network that we enjoy through On Time.

Okay. So in other words, I mean, you don't see major volatility in your gross margin related to this issue?

Well, I have to kind of think through that. I don't think we will see major volatility in the ultimate earnings; whether it shows up at the gross margin line item but we make it back in terms of the relative proportion of agent commissions paid out, I think that's where we may see it.

Okay. That's it for me. Thank you very much for your time.

All right. Thank you.

At this time, I would like to turn the call back to Mr. Crain for closing comments.

Thank you. Let me close by saying that we remain very excited with our progress and prospects here at Radiant, and we remain very bullish on the growth platform that we've created, and the scalability of our non-asset base business model. We continue to make good progress in exceeding our strategy, leveraging the Radiant platform to bring value to our operating partners, and we remain very excited about the opportunity to grow our business organically, leveraging the capabilities of On Time's dedicated line-haul network to strengthen existing and expand new customer relationships, as well as help us attract additional independent agent locations to our platforms; and by completing acquisitions of other companies that bring critical mass from a geographic standpoint, incremental purchasing power, and/or complementary service offerings that will benefit from a broader network.

Thanks for listening and your support of Radiant Logistics.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time, and thank you for your participation.